ESG Investing - Part II
PGIM experts join David Hunt to explore trends across the ESG investment landscape.
In this installment of PGIM’s “In Conversation” series, Host and PGIM’s Chief Executive Officer, David Hunt, welcomes Lisa Davis, Portfolio Manager for U.S. Impact Investing at PGIM Real Estate; Eugenia Jackson, Head of ESG Research at PGIM Fixed Income; and Gavin Smith, Head of Equity at QMA. During the conversation, the four explore global Environmental, Social, and Governance (ESG) trends across fixed income, equity and real estate markets. Topics covered included how asset management firms can engage with companies to create positive change, the acceleration of ESG and sustainable investing due to the COVID-19 crisis, and embedding ESG best practices across PGIM's investment and risk management processes.
To learn more about PGIM's approach to ESG investing, click here.
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>> Greetings and welcome to this next series of conversations with some of our leading thinkers in investment management. Today our topic is ESG. ESG has been at the forefront of many of our clients' minds for a number of years but in some ways over the last year and with the rise of the pandemic, it's become even more important and in some ways its definition has broadened to include many more aspects of, particularly I would say, societal issues than we've seen before. And so today we have really, really interesting perspectives from fixed income, from real estate, and from quantitative management who each have different ways of putting ESG into their own investment processes. So one of the most important elements of the dialogue around ESG is how our asset manager is going to engage with companies to create change. And a lot of this has been, to some extent, focused on the equity markets but Eugenia, I want to move to you and just talk about -- how do we think about that on the fixed income side? And how are we beginning to push this agenda with companies?
>> Well, thank you David. Issue engagement is actually a critical part of the investment process for active fixed income managers such as PGIM Fixed Income, and we're actively using our access to companies and our interactions with companies to put ESG issues on the table. Now of course, unlike equity investors, we don't have a very powerful lever of voting rights but fixed income has other advantages that can actually be very helpful in ESG engagement. Firstly, companies tend to tap into debt markets much more frequently compared to the equity markets and this creates this opportunity to have regular communication between companies and debt investors focusing on ESG issues. And secondly and importantly, because of this direct link, you know, between the needs to raise capital in debt markets, where you have investment decisions that are driven by ESG considerations, that has a direct impact on the company, on the cost of capital, and really helps to raise ESG topics to the attention of senior management. So I think engagement is a great opportunity for fixed income to raise ESG topics. And I think we can use different levers from our equity colleagues.
>> So Gavin, you're the man with the vote actually. So as an equity manager, how do we think about using the broad range of tools around engagement with companies including our voting rights?
>> Well, you know one of the points to make [inaudible] today where equity invested but also quant and I often get this engagement question with the expectation that quants can't engage. And that's actually a big misnomer. It's like we do look to engage just differently. So we're quant. We like data. So when we look to engage with companies, we're looking for more data. We're looking for data disclosure. With more data being disclosed, there is better transparency. There is more of a spotlight on corporate practices and that transparency, that visibility is a great way to encourage companies' management to improve their practices. We look to take steps to improve ESG standards across the entire market and so by this what it means is that we look to interact with data vendors, for instance ESG data vendors or ESG index providers. What we want to do is help guide and provide insight into what the most meaningful ESG attributes are that they should be focusing on. When you think of an ESG index, how should these be constructed? How should certain good ESG companies be getting promoted in that index and be rewarded by capital being directed to them? By that, we can look to improve the ESG standard across the whole market.
>> Community engagement, in terms of our internal employees, engagement is also an important part of company culture, talent retention, and how we achieve excellence in investment performance. So especially in this time following the social protest movements, as a company, we have become very focused on employee engagement and community engagement in the places where we invest and where our employees live. And as the Covid crisis has drug on and there's been a lot of need in our communities, that employee engagement has been a really important part of how people find meaning in their jobs and at the same time can connect to the needs in their communities.
>> Great. Thank you all very much for joining this series of conversations. I thought that was a fabulous exchange of ideas on ESG.
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